Budget 2009: You Read It Here First
I flagged the Equalization cuts the morning after the November 2008 Economic Statement, when they received little attention. These cuts have since become a Budget hot potato because of reaction from Quebec and Newfoundland.
Last week, I raised the probability of Ignatieff putting forward amendments rather than fully accepting or rejecting the Budget. (Given that his amendment is procedural rather than substantive, he has essentially just accepted the Budget. However, my post was correct regarding his choice of political tactics.)
UPDATE (Jan. 30): The Halifax Chronicle Herald is giving us some credit:
With Ontario now collecting modest equalization, the new ceiling for payments would have been British Columbiaâ€™s capacity. Mr. Flaherty clearly thought this too generous, so the clawback trigger has been lowered. Itâ€™s now the average capacity of the receiving provinces, after counting both equalization and all resource revenues (half of which are excluded when determining who gets equalization).
Muddled? Erin Weir, a young Saskatchewan economist and former NDP candidate, summarizes the impact of Cap 2 in a perceptive online column for the Progressive Economics Forum: It limits the equalization entitlements of resource-rich provinces with below-average personal incomes. So itâ€™s no wonder Newfoundland Premier Danny Williams feels targeted again. Sometimes paranoids do have enemies.
The two caps will save Ottawa $5.3 billion this year and next. Arguably, a large chunk of the budgetâ€™s $12-billion infrastructure program is perversely rerouted from equalization.